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Natural Gas Regulation in Brazil: Framework to Stimulate Competition in Sao Paulo State from 2011.

Natural Gas Regulation in Brazil: Framework to Stimulate Competition in Sao Paulo State from 2011.

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Published by gilberto1096
SANTANA, PHM; BAJAY, S; JANNUZZI, GM - Natural Gas Regulation in Brazil: Framework to Stimulate Competition in Sao Paulo State from 2011. Trabalho apresentado no 27th USAEE/IAEE - North American Conference, realizado em Houston, Texas, Estados Unidos, em 2007.
SANTANA, PHM; BAJAY, S; JANNUZZI, GM - Natural Gas Regulation in Brazil: Framework to Stimulate Competition in Sao Paulo State from 2011. Trabalho apresentado no 27th USAEE/IAEE - North American Conference, realizado em Houston, Texas, Estados Unidos, em 2007.

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Natural Gas Regulation in Brazil: a framework to Stimulate Competitionin the State of São Paulo from 2011
by
Paulo Henrique de Mello Sant Ana
, Energy Planning Group (NIPE), State University of Campinas, +55 (19) 3289 5499 phsantana@fem.unicamp.br]
Gilberto De Martino Jannuzzi
, State University of Campinas, +55 (19) 3289 5499, jannuzzi@fem.unicamp.br
Sergio Valdir Bajay
, NIPE - State University of Campinas, ,+55 (19) 3289 5499,bajay@fem.unicamp.br
Abstract
Regulation of the natural gas industry is recent in Brazil. The agencies
regulating this industry, both in Federal and state levels, were set up only in the late 90’s.
Figure 1 shows the current natural gas industry organization in Brazil. This paper proposesa new regulatory framework to pave the way to competition in retail trade of natural gas inthe state of Sao Paulo from 2011. At this year, a regulatory mark in the state will liberalizethe retail trade for industry and electricity generation. Market planning of natural gas inSao Paulo State is done through a market outlook. Demand is projected using simplelogistic curve estimation. On the supply side, projection considers Petrobras StrategyPlanning. Proposed regulatory framework considers international experience and Braziliancharacteristics, both in upstream and downstream levels. Brazilian natural gas market isconcentrated in the Southwest part of Brazil, and the interstate system is interconnected inthe major markets. It means that a natural gas oversupply in Brazil would directly reflect inSao Paulo State, that is located in the Sothwest. In the optimistic (aggressive) scenarioconsidered for 2011, Brazil would have an oversupply of 0.4 bcf/day. This oversupplytogether with Bill 334/07 for the upstream, and the downstream framework proposed inthis paper, would help competition development in the state of Sao Paulo; it wouldprobably: 1) create a wholesale and a retail gas market; 2) stimulate risk managementtools, i.e. derivative instruments; 3) promote a shift from long-term to short-term contracts
 between LDC’s and shippers; 4) cr 
eate a spot and future markets; 5) promote a movetowards spot and futures gas price indexation in mid- and long-term supply contracts.Competition would probably bring end-user prices down, as it happened in USA and the
 
United Kingdom (IEA, 1998). However, government and regulators should work togetheron planning activities and the security of supply, to avoid possible shortage problems thathappened in these countries.
1.
Introduction
Regulation of the natural gas industry is recent in Brazil. The agencies regulating thisindustry, both in Federal and state levels
, were set up only in the late 90’s. “Agência Nacional
do
Petróleo” (ANP), a Federal regulatory agency, was created by
Law 9,478, in 06/08/1997, duringthe government of President Fernando Henrique Cardoso, to regulate and monitor oil, natural gasand other fuels
markets. ANP regulates natural gas upstream activities (production, imports, andtransportation) and storage. Before a constitutional amendment in 1995, a legal monopoly grantedthe oil and gas upstream activities to a Federal-government-owned company called Petrobras.The current Constitution, holding since 1988, sets forth that the Brazilian states areresponsible to explore downstream natural gas services (distribution and retail trading). ThatConstitution allowed initially just state-owned companies to carry out such services. Aconstitutional amendment, also approved by Congress in 1995, extended this right to investor-owned companies holding a concession contract granted by the state governments. So, today, thestate governments, through local agencies, regulate the downstream activities of the gas industry inthe country (ANP, 2001). Figure 1 shows the current natural gas industry organization in Brazil,while Figure 2 illustrates the regulatory regimes holding since Law 9,478 was passed in 1997.
Figure 1: Organization of the Brazilian natural gas industry
Shipper
Policy: federal government
ANP
Transportation(carrier
)
Distribution &trading
Policy: state government
End-user
State regulatory agencies
City gat  
Natural gasexploration,production,processing,importation andstorage
 
 
Figure 2: Regulatory regimes in the natural gas industry in Brazil after Law 9,478/97
In the exploration and production (E&P) stages of the natural gas production chain,auctions for E&P blocks are organized by ANP, and the winners sign concession contracts toexplore and produce oil and gas fields during a specified period of time. Transportation,importation and storage need just authorizations provide by ANP to the interested companies.A framework to stimulate competition in retail trading for the state of São Paulo isproposed in this paper. When Comgas, the only natural gas distribution utility existing in the Sateof São Paulo was privatized, in 1999, and two new, private, utilities were created in the state, theirconcession contracts, signed with the state government, defined that their monopoly in gas sales forpower generation facilities and industrial plants will end from 2011 on. However, if marketstructure and regulation stay as they are now, competition will probably not develop to ameaningful scale.In the following section, this paper provides a short description of the natural gas industryin the state of São Paulo and Brazil. In section 3, a likely surplus of natural gas in 2011, in Brazil,is discussed. Then, the current upstream gas regulation is reviewed, together with an analysis of two gas bills now being discussed in the Brazilian Congress. In the sequence, downstream gasregulatory in the State of São Paulo is briefly described. In section 5, a new regulatory framework to pave the way to competition in retail trade of natural gas in the state from 2011 is put forward.Finally, in the concluding section, the foreseeable impacts of the proposed framework areexamined.It is important to point out that the authors are not worried here about arguing for a moremarket oriented, or a heavier handed regulation, since both structures can produce distorted results,as demonstrated by several experiences all around the world, and the efficacy of corrective actionsdepends on how advanced are the antitrust legislation and performance based regulation availablein each case.
ProductionTransportation,importation & storage
 
Distribution Retail trading
Federal government
Winners of auctionsorganized by ANP signconcession contractsInterested companiesrequire authorizationsfrom ANP
State government
Each state law defines the regulatoryregime: concession or authorization

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